WellPoint Inc., the parent company of Anthem Blue Cross, yesterday backed down from its 39% hike of health plan premiums for 800,000 Californians after state officials unveiled an audit showing "numerous and substantial errors" in a filing Anthem said justified the increase.
The audit, conducted by Axene Health Partners LLC, showed that Anthem double counted "aging" as a projection of total lifetime loss ratio, and "overstated the initial medical trend used to project claims for September 2009 for known risk factors," said state Insurance Commissioner Steve Poizner.
According to the audit, Anthem made five errors, two of which were described as "material," and when corrected, would result in a population that was not as old or as sick, and presumably would incur much lower medical costs.
"I'm pleased that California consumers will not face rate hikes of up to 39%," Poizner said in a statement yesterday. Poizner, who is running for governor, said he had ordered the outside review "because I was highly skeptical" of the assumptions the company was making in its request for so much more money from thousands in California's individual insurance market.
Yesterday afternoon in a statement, Anthem Blue Cross said it would refile rates in the individual market in California.
"We think it is in the best interests of our customers and those seeking insurance coverage in California to refile our rates, taking into consideration healthcare reform law and the most recent cost and utilization information available," said Brian Sassi, president and CEO of WellPoint's Consumer business unit. "Our goal is to make healthcare reform work for our members."
The statement added, "By refiling our individual rate requests, we will also utilize updated and real-time medical utilization information as well as address inadvertent miscalculations related to the way in which we estimated our future medical costs in our initial filings." A spokesman could not be reached for further comment.
The insurance plan's original proposal as well as findings in the Axene audit help to fuel political and consumer fury about what many believe is a widespread trend among for-profit health insurance companies to gouge customers.
Secretary of Health and Human Services Kathleen Sebelius also weighed in on Anthem's rate increase withdrawal.
"Today's announcement is good news for the more than 800,000 Californians who could have been hit with massive rate increases and gives them some much-needed temporary relief. Since these rate hikes were first announced, I have heard from countless Americans who have been stretched to the limit by high health insurance premiums.
She continued: "This result was achieved because those who oversee the insurance industry on the state and federal levels heard these voices, held investigations, and demanded action." She said federal officials "will closely monitor the industry, and we will not hesitate to act to prevent exorbitant premium hikes."
In California, Consumer Watchdog president Jamie Court said the report "should be Exhibit A in the case for making health insurers prove the need for premium increases to government agencies before the rates take effect. Americans will be required to show proof of health insurance by 2014 and insurance companies should be required to show that premiums they charge are reasonable."
Without the audit, Court said, "this insurance company would have snuck an unreasonable increase by under the nose of regulators, and patients would have been priced out of their health insurance."
Yesterday, Anthem's reported fiscal 2010 first quarter profit of 51% provoked U.S. Sen. Dianne Feinstein, D-CA, to call on the company to forget the 39% hike.
Feinstein said in a release that the profits were evidence WellPoint is not hiking up rates on customers due to economic need, as the company claims, but as part of a coordinated strategy to drive up corporate profits.
And, she noted, the profit increase came two weeks after news reports revealed that WellPoint CEO and President Angela F. Braly received a 51% increase in her compensation last year.
Earlier this year, Feinstein had tried to amend the health reform bill to include a stringent process for health companies seeking rate hikes of a certain amount to be required to produce documentation for review, and be approved.
And yesterday several consumer groups again took up that chant.
"Oversight matters," said Anthony Wright, executive director of Health Access California. "But more than rate relief, this withdrawal of the rate hike proposals show why we need regulators to have active oversight over the insurance industry."
Wright added that Poizner's audit, done under existing law "was very limited, and it was still able to find basic problems with arithmetic and double-counting."
A bill now being considered in the California Legislature would require HMOs and health insurers to seek prior approval for rate increases and justify overhead costs, just like companies providing auto and other kinds of insurance already have to do under California's Proposition 103.